President Trump has embraced tariffs (Image: Getty)
President Trump’s tariffs could wreck Chancellor Reeves’s plans, the head of Britain’s spending watchdog has warned. It is feared a decision in the White House could knock a full 1% off Britain’s GDP. Such a move would force the Chancellor to once again scramble to secure the national finances and prevent market turmoil.
Ms Reeves this week announced controversial changes in benefits to rescue her Budget and stop her fiscal “headroom” being wiped out. The Chancellor has restored the ￡9.9billion in spare cash that would have disappeared due to the worsening financial situation but the chair of the Office for Budgetary Responsibility had a grim warning.
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Richard Hughes confirmed that its forecast calculated for neither President Trump’s announcement of 25% tariffs on car export to the United States nor the potential for further protectionist measures being announced next month.
He said: “If they turn out to involve, as he is threatening, tariffs going up to 25% against the entire world then that is not in our forecast and the impact it could have in the near term is about 1% off the level of GDP... and fiscally it has a big hit to domestic revenue generation and takes the ￡10billion to zero pretty swiftly.
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Mr Hughes cast doubt on the effectiveness of the UK retaliating against the US, warning this could just force up prices at home in what would be a further blow to households and businesses.
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Commenting on the fragility of her headroom, he said: “￡10billion is really nothing compared to the risks around the outlook.”
He admitted that “tariffs are a very big risk to the outlook”.
rowth in productivty over the next five years to also wipe out that headroom because it affects all tax bases in the country.”
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His warning will put further pressure on British ministers and diplomats to ensure the UK is spared the worst of the president’s plans for new protectionism. There are hopes that a new economic deal with the US can be secured.
Mr Hughes described the outlook as “more challenging” and “more uncertain”. He also noted that falls in productivity could also wreck the Chancellor’s plans.
He said: “It just takes 0.1% off the rate of growth in productivty over the next five years to also wipe out that headroom because it affects all tax bases in the country.”